During today's afternoon trading session, Caterpillar took the market by storm, rocketing to $411.92 per share despite it now being above its mean target price of $374.6. This 1.8% movement implies there may not be much more room for upwards movement for the stock -- if its analysts are to be believed. They are giving the Heavy Machinery stock on average rating of buy, with target prices ranging from 283.0 to 425.0 dollars per share.
The market seems to share this optimistic view, since Caterpillar has a short interest of only 1.3% (this is the percentage of the share float that is being shorted). Each short position represents an investor's expectation that the price of the stock will decrease in the future.
When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.
Another way to gauge the sentiment on Caterpillar is to look at the percentage of institutions that are invested in the stock. In this case, 72.2% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.
If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.
Overall, there is mixed market sentiment on Caterpillar because its an analyst consensus of little upside potential, a buy rating, a very low short interest, and an average number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.
Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are CAT's recent cash flows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2024 | 12,035,000 | 1,988,000 | 10,047,000 | -10.99 |
| 2023 | 12,885,000 | 1,597,000 | 11,288,000 | 74.47 |
| 2022 | 7,766,000 | 1,296,000 | 6,470,000 | 5.98 |
| 2021 | 7,198,000 | 1,093,000 | 6,105,000 | 14.13 |
| 2020 | 6,327,000 | 978,000 | 5,349,000 | -8.66 |
| 2019 | 6,912,000 | 1,056,000 | 5,856,000 |
